In a context of economic downturn in 2024, fiscal policy has taken an expansionary stance, according to the report “Budgetary Evolution of Public Administrations in 2024” released today by the Public Finance Council (CFP).
The CFP noted that last year, the budgetary stimulus provided by the Recovery and Resilience Plan (PRR) to economic activity “contributed to accentuating the expansionary orientation of fiscal policy,” marking a shift from the restrictive stance observed in 2023.
Excluding the impact of temporary and one-off measures, CFP estimates suggest that economic cyclical developments have contributed one-third to the annual reduction in the budget balance, with the majority contribution (two-thirds) coming from the discretionary actions of the Government’s fiscal policy.
The report highlights the implementation of measures such as the reduction of IRS, enhancement of public sector wages, and an increase in social benefits, particularly the updating and strengthening of pensions.
Regarding the structural primary balance, which allows for the evaluation of discretionary actions, there was a decrease equivalent to 0.6 percentage points of potential Gross Domestic Product (GDP).
“In this context, fiscal policy in 2024 was expansionary and countercyclical,” the CFP concludes.
In 2024, the Public Administrations (PA) recorded a surplus of 0.7% of GDP, above the 0.2% of GDP predicted in the State Budget for 2024 (OE/2024), yet below the 1.2% of GDP achieved in 2023.
The organization led by Nazaré da Costa Cabral indicated that the Central Administration “was responsible for this deterioration,” while the Regional and Local Administration “returned to a positive balance” and Social Security Funds “maintained a significant budget surplus.”
With this performance, Portugal was one of six European Union member states to register a surplus in 2024 and one of four to secure a positive balance over the last two years.
